Base Shuffle Might Benefit Region

The reshuffling of military personnel and contractors recommended last week by the federal base-closing panel might disrupt some parts of the region in the short run, but economists and developers say that over time the changes would likely to provide an economic boost -- if the impact is noticed at all.

In a regional economy that supports aboiut 3 million jobs and typically adds tens of thousands of workers annually, even major moves like the departure of thousands of federal contractors from leased office space in Northern Virginia would be absorbed over time without much effect, economists and other analysts say.

According to a new regional study commissioned by Transwestern Commercial Services of Bethesda, the decisions of a federal base closing panel would cost the area 7,500 jobs over the next six years, but by 2015 the net effect would be a gain of 6,600 jobs.

"If this had taken place in Baltimore, if they had suffered this magnitude of government users leaving, it would be devastating, but in D.C. it's seen as mainly inconvenient," said Anirban Basu, chief executive of Sage Policy Group in Baltimore.

"D.C. is special in its capacity to generate greater economic activity and more office users. The space that these defense agencies leave behind will be filled by another user. . . . Not right away, but eventually."

The federal base-closing commission, acting on initial proposals from the Pentagon, must send its final report to President Bush by Sept. 8. The president can accept the list or send it back for revision before forwarding it to Congress, which must accept or reject the recommendations in full.

Though the deliberations of the federal panel have been criticized, particularly among landlords or communities that stand to lose jobs and business, the moves approved last week amount to more of a redistribution than a retrenchment for the Washington area.

Northern Virginia would lose more than 20,000 federal employees and contractors who are in leased office space as the government moves them to secured military facilities, according to Defense Department data. But Fort Belvoir in southeast Fairfax County and the surrounding area would gain about 12,000 federal workers and contractors. At Fort Meade in northwest Anne Arundel County, more than 5,000 jobs would be added, according to Defense Department data. The Aberdeen Proving Ground in Harford County would gain an additional 2,000 jobs.

The planned influx of workers to Fort Belvoir is already sparking predictions of a local building boom of some 3 million to 5 million square feet of new office construction, economists and brokers say. The area has virtually no office market now. Developer KSI Services Inc. of Vienna, for example, is planning a secure campus for a defense agency or contractor on a 150-acre parcel. KSI executives said they've received a few calls of interest but have no signed offer.

There would be some negative ripple effects as well, including more traffic. The personnel shuffle would add about 84,932 daily car trips to the region's roads by 2015, according to the Transwestern study. The increased traffic would hit hardest at Fort Belvoir, where some locals would like to see Metro extended.

But from northern Maryland to Occoquan, many analysts see economic potential in the basing decisions.

Rockville developer Opus East, for example, has plans to build up to 3 million square feet of office space on Aberdeen's grounds. Half of it would go for the government workers that are expected to come to the area from other base closings; the rest would be for contractors. Construction on part of it is expected to start next year.

"We want to get ahead of the train," said James Lee, chief executive of Opus East.

"There's a new reality of federal office buildings and the way you do it is to go to a secure base like Fort Belvoir, Meade or Aberdeen," he said. "We're betting heavily on Aberdeen."

In Crystal City, vacancy rates would rise at office buildings as government agencies and contractors leave -- ordered from less secure, privately-leased space to more secure sites on bases. That could cause rental rates to decline as landlords offer deals to lure new tenants, say real estate brokers.

But developers and brokers note that the departure of government agencies would happen gradually over the next five to 10 years. The Crystal City market is well-positioned because it is close to the city, is near the Pentagon, has housing and retail within walking distance of the Metro and is going through an improvement to make it a more pedestrian-friendly area with new restaurants and walkways.

"Crystal City survived the Navy's moving out in the mid-1990s," said Gregory H. Leisch, chief executive of Delta Associates, a real estate research firm that helped do the Transwestern study. "It survived the move out of the U.S. Patent and Trademark office's going to Alexandria last year. It's survived because of location, location, location."

He said about 700,000 square feet of the office space in Crystal City, which was built mostly in the 1960s and 1970s, is likely to be converted to residential units or demolished and rebuilt as new, more modern office space.

Mitchell N. Schear, president of Vornado's Charles E. Smith Commercial Realty division -- the biggest landlord in Crystal City -- said that because the impact of base closings would happen over time, new corporate users and government agencies and contractors would fill the space.

Vornado, for example, just signed a 155,000-square-foot lease with KBR, an engineering and construction division of Halliburton Co. The company is consolidating three offices it has in Rosslyn and taking space in Crystal City that had been occupied by the U.S. Patent and Trademark Office.

Some developers and politicians say the closure of Walter Reed Army Medical Center in upper Northwest Washington could be an opportunity to turn the 113 acres between Georgia Avenue and 16th Street into a residential, retail and office complex for private development.

But developers caution that the process of disposing of the land and buildings on the grassy Walter Reed campus would be long and potentially complicated.

"It's a tremendous piece of undeveloped land in a terrific location," said John E. "Chip" Akridge III, a major developer in D.C. "You could put just about anything you wanted there, depending on what you can get approved."

But Akridge said the government's disposal process requires that it first be offered to another government agency and that the nearby National Institutes of Health is likely to want it. If NIH didn't take it, the District government would be next in line.

"The last snatch on the ladder is to offer it to the private sector," Akridge said.

Another federal agency such as the National Institutes of Health would get first crack at Walter Reed Army Medical Center in the District if it closes.

Route 1 traffic near Fort Belvoir is expected to get much worse if 12,000 jobs are moved to the Virginia base, as the Defense Department estimates.Although Crystal City would lose the most jobs under the defense reshuffling plan, its prime location has allowed it to absorb previous agency relocations.